The unpredictability and lack of data – inconceivable
Now merely a memory – to many in the lending industry mercifully so – 2023 was so mercurial and unpredictable to the point of causing befuddlement. And if you thought learned economists surely must have a keen grasp of what just transpired, you may want to think again.
Mortgage Professional America chatted with Xander Snyder (pictured), CRE economist at First American, to determine whether he and his colleagues were prepared for what just transpired. The upshot: There’s a vague comfort in realizing economists were dazed and confused too, albeit in a measured way.
It’s been a wild ride, to be sure
For Snyder, it’s not just last year but the last handful that constituted a wild ride. “The last three-and-a-half years have been a ride all around, right?” he asked rhetorically during a telephone interview with MPA. “It’s just been one unprecedented – maybe not completely unprecedented because we had the Spanish flu 100 years ago – event after another.”
But good record-keeping wasn’t exactly top of mind back amid a pandemic that ultimately infected some 500 million people globally. Understandably, there were more pressing matters needing attention. But that doesn’t help economists yield perspective or extrapolate data for longitudinal study.
“It’s difficult to make sense of the change right now because a lot of the historical analogs that we as economists can look at, we have limited data for,” Snyder said.
What exactly is up with that yield curve inversion?
Take the yield curve inversion, please. To many observers, that development added a whole other layer of surrealness to an already funky post-pandemic landscape. “Like the yield curve inversion,” Snyder said in offering up the example of the strange things we’ve seen. “That’s typically a leading indicator of recessions. But it’s tough to go back to the last time there was a once-in-a-hundred-years pandemic because the data was different in 1919 than it is now.”
An inverted yield curve is a state in which longer-term bonds have a lower yield than short-term debt instruments. A rare phenomenon to be sure, it’s made weirder in that it’s usually a reliable indicator of an impending recession that has yet to materialize.
What can we learn from the S&L crisis?
Snyder then took another stab at a past cataclysmic event – the collapse of the thrift industry – that may have informed the present, but no dice there either.
“Similarly, you could argue that a good historical analog is the savings & loan crisis in the late 80s, early 90s,” Snyder said. “There’s just not a lot of commercial real estate data from then. We really started as an industry collecting commercial real estate data more comprehensively around 2000. Some of the best historical analogs we can go back to are limited with the data, so it’s challenging to make sense of some of these transitions right now as an economist.”
Higher inflation and interest rates – both troublesome metrics being felt in today’s down market – paved the way for the S&L crisis, as recounted by Federal Reserve History. The result was twofold: interest rates S&Ls could pay on deposits set by the federal government were substantially below what could be earned elsewhere, according to the site, which prompted savers to withdraw their funds en masse. Since S&Ls primarily made long-term fixed-rate mortgages, the site reports, when interest rates rose those mortgages lost a considerable amount of value. This essentially wiped out the net worth of the S&L industry.
But again, there’s no comprehensive data from which to draw parallelisms to the current state of affairs. So as rich a vein as that crisis would have been to inform the present, there is no data from which to assess what’s happening today.
Maybe we should all pretend it’s all been a fever dream and it never happened. But economists are very different from you and me, and First American’s Snyder – true to his economist’s bona fides – couldn’t help himself: “It’s a fascinating time,” he allows.
That’s certainly one way to put it.
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